Holding

Paragraph 3.8 of the LIC instructions confers the notional fitment benefit only on ex‑servicemen already employed before 1 January 1988, and the option‑cum‑consent letter is limited to such existing employees.

Summary

The case concerned ex‑servicemen re‑employed by the Life Insurance Corporation (LIC) of India who were appointed after 1 January 1988. LIC had issued instructions on 2 June 1989 prescribing how their salaries should be fixed, including a notional fitment provision in paragraph 3.8 that was intended only for ex‑servicemen already employed before that date. The appellants argued that the benefit of paragraph 3.8 should also apply to them, contending that the cut‑off date was arbitrary and that option‑cum‑consent letters had been obtained from them. The respondents maintained that paragraph 3.8, together with paragraph 6, expressly limited the benefit to existing ex‑servicemen and that the corporation was entitled to correct the erroneous salary calculations by reducing the excess pay. The Supreme Court examined the language of the instructions, the examples annexed to paragraph 3.8, and the purpose of the scheme, concluding that the benefit was confined to those employed before 1 January 1988 and that the option‑cum‑consent letter could be obtained only from such employees. Consequently, the Court upheld the Kerala High Court’s finding that the appellants were not entitled to the notional fitment and allowed the corporation to adjust their salaries accordingly.

Issues considered

Whether paragraph 3.8 of the LIC instructions on pay fixation applies to ex‑servicemen re‑employed after 1 January 1988.
Whether an option‑cum‑consent letter must be obtained from each existing ex‑servicemen employee before the fitment under paragraph 3.8 can be availed.
Whether the corporation may retrospectively reduce the salary of the appellants on the ground that the benefit was erroneously granted.

Subjects

ex‑servicemenre‑employmentpay fixationLife Insurance Corporationnotional fitmentpension adjustmentoption‑cum‑consent lettersalary reductionstatutory interpretation

Judgment

------ -----------
)
I '

SH. O.K. UDAYASANKARAN AND ORS. ETC.. A
v.
UNION OF INDIA AND ORS. ETC. ·

MARCH 27, 1996
B
A.M. AHMADI, CJ, SUJATA V. MANOHAR
. AND
. K.
.. VENKATASWAMI,
. . - .JJ.)

I S en•ice Law :
~
! '
Life J11szrrance Corporation-Pay faation of ex~sen•iceme11 re-employed C
prior to 1.1.1988-Drawing salary after deduction of pe11sion from defe11ce
services-Compensatory scheme framed for notional fitmelll on exercise of
option w.e.f. U.1988-Whether available for Appellants who joi11ed after
1.1.1988-Drawing'salary in addition to pensio11from defence services-Held,
No.-Tl1{ Option ha~ to be exercised 011/y by existillg ex-serviceme11. D

l. The Life lnsuratice C~rporation of India framed a scheme in 1989 for
liiation of pay of .ex-servicemen who were re-employed in .the. Corporation.
As per para 3.7 of the ~cheme if an ex-servicemen was re-employed within
three years after discharge from Defence Services then his last dralln E
salary in th~ Defence Servicesuill be compared to his starting saiary on (he
date of his re-implormerit so as t~ pr~iect his last drawn salary. As per
P~ra_ 3.s. of .·the .inSiru~ti~ns if the ex-seniceman is re-employe_d after a
pe~iod of th~ee y~a..S aft~r disch~rge, his la~t dr.iwn salary in defence
s~l"'liC~ ;.;,,jj<I be c;;~pa~ed with hi~ salary that h~ ,;.ould have drawn if he
had bee.; i~m~iat~iy ~mployed and ti1e salary wl;ich the ex-servicem~n F
i.m get' o,; the act~at date of his ;:.~mplo).,;.ent by the Corporati~n is
.;~tionally worked out. The h~strnction also provided that \he ex-ser,
Vi~~~3D '!iii'get the behefii-~r ~n.Y ~e~ision ~r pay scal~s in lhe int~,rr~gnll~.
Howeve~,
' ' . ' • ' ' ·-..
the. ni~e.;t.wouid
f - ' - '•
be notionally
-. ' .
effected
; -.-
and
.
acitial
• .
benefit
-
was ''"
- -; '
be given onlyfro1111.l.1988. The fitment under Para 3.8 was applicable only
. i~ thus~ who w~i-e employed p~lor to' 1.1.19ss an·d arter exercising an optio'n. G
Th,• ~ppellant, ":ho were ex;servlcemen who were 're-employed '~fter
1.1.1988 challenged the applicability of the instructions. The appellants
coniended that there was no basis forthe cut·off date and th~t the o.ptio'n-
cu~-c.;nsent letters for such a fit~e.;t was also obtained from ex~~er· •
vi~me~
. ·- employ~d
. ,.
arier 1.1.1988. The
.
resp~ndent's
-
stated
-
that .~~lier
. . '.,. the H
955
,J

956 SUPREME COURT REPORTS [1996) 3 S.C.R.

A salary of .ex-servicemen wherever re-employed in Government or Public
Service, the component of pension was deducted and adjusted in the salary
on re-employment; that the corporation decided to allow the ex-servicemen •
who ,joined after 1.1.1988 to retain their pension and they were getting
salary in addition to the pension; that since this benefit was not available
to those were re-employed prior to 1.1.1988, it was decided to compensate
B them by notional fitinent as per para 3.8 of the instructions; that they did
not obtain any consent letters from appellants and that by mistake they had
allowed three appellants the benefit of para 3.8 and that they had to correct
this mistake by recalculating their salary. Dismissing the Appeals and Writ
Petition, this Court
c HELD : 1. Para 6 of the inst~uctions clearly provides that the
option-cum-consent letters has to be obtained from each existing ex-ser-
viceman employee opting fitment of salary as per the instruction. It is to
be exercised only by existing ex-servicemen employees of Life Insurance
Corporation. (963-B)
D
2. The High Court was right in rejecting the contentions of the
appellants. There Is no reason to interfere with the findings given by the
High Co.urt. [963-E·F)

E 3. The respondents ore entitled to reduce the pay of the appellants
granted to them erroneously, In the light of the instructions. (963-D]

CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeal
No. 5255 of 1996 Etc.'

F· From the Judgment and Order dated 3.6.91 of the Kerala High Court
in W.A No. 451 of 1991.

·Dr. RajeeC Dhavan, H.N. Salve, G.L. Sanghi, V.C.Mahajan, Rakesh
Luthra, Gopal Singh, .KV. Mohan, Ajay Singh, H.K. Chaturvedi, H.P.
G Sharma, S. Markandeya, Pravir Choudhary, Ms. Indira Sawahney and S.'N.
Terdol for the appeari~g parties.

The Judgment of the Court was delivered by

MRS. SUJATA V. MANOHAR, J. Leave granted in .S.L.P. (C) No.
H 2158 of 1992.
O.K. UDAYASANKARANv. U.0.1. 957

The appellants, are the employees .of the L!fe lrisuran~e Corporation A
of India al Kozhikotle. They are ex-servicemen who were re-employed by
( . . - - .
the Life Insurance Corp.oration of fadia after their discharge from military
service. Th~re is a gap of more than three years between their discharge
from military service and their appointment in .the Life Insurance Corpora-
tion of India. The dispute raised in this appeal relates to the fixation of B
salary of these ex-servicemen on their re-employment in the Life Insurance
Corporation of India. Along with this appeal, Writ Petition No. 437 of 19_93
has a!So been heard. This petition is filed by the Ex-servicemen Life
Insurance Corporation Employees Association and the issue raised in this
petition is identical with the issue rais~d in the appeal: Th~ dispute rel~tes
to ex-servicemen
~ .
who have been
.
appointed after
' . a gap
- .
of three
.
years or C
more from. their discharge· from military service to. the .Life Insurarice
Corporation of India and pertains to those who have been so appointed
after 1.l.1988.

· The dispute pertains to the interpretation of. instructions dated 2nd
of .lune: 1989 i.ssued by the Central Office of the Life Insurance Corpora- D
tion of India relating to re-employment of ex-servicemen in the Life In-
surance Corporation and their pay fixation. The relevant Paragraphs of
., these Instructions are set out below :

11
3. Pay Fixation o,n Re-cntploynient : E
.I .

3.1 : Basic Salary of a re-employed Ex-serviceman shiill be fitted
at the minimum of the scale in whicn he is appointed. H:owever, if
the gross salary as per 'Y' below at the minimum of the scales does
not produce an amount equal to ~r more than .the last dr~wn gross
salary as per 'X' below. in the Defence Services, additional incrc- F
.:itent/s as ·;,,ay be ·necessary,
.
ove·r.
"•i
inini;,,um- ofL the
.
s·cale shall be
. - ' ..
allowed to make up the difference and : thus : provi4e protection
to the last drawn. gross s~lary.
' . ' ' -

3.2 : If in exceptional cases, fit~ent, even at the ceiiing ~f the entry
G
grade does notprovi~de full protection, personal allowance shall be
granted
.
which- may
', .
.be absorbed
" ' .
agaiitst future
.
increase in emolu-
'\

rnents. t~ •

-1 I ., ' ' r· ' ' "
• ..j_;f•:·; '
3.3 : 'X'
·~
, -,•
i.e.'- last
'_;
drawn
'
gross salary
... ' \
in .......
the Defence ~
._,- ___
Service
..
.at the
-· ·:.
· time of release shall be the aggregate of the following components: . H,.
. •'' '. ' - . . ' . '·
958 SUPREME COURT REPORTS [1996] 3 S.C.R.

A (i) Pay as defined in sub-para 3(ix) of the Dept. of Personnel &
Training O.M. No. 3/l/85-East (P ll) dated 31.7.1986.
Relevant extracts of the O.M. are given in the Appendix 'A': ).

(ii) Dearness Allowances;

B (iii) Additional Dearness Alkiwancc;

(iv) Interim Relief;

(v) . City Compensatory Allowance;

c (vi) Compensation in lieu of Quarters (C.I.L.O.) House Rent
Allowance;

(vii) Ration Allowance.

3.4 : 'Y' i.e. gross salary in L.l .C. shall be the aggregate of the
D following:

(i) Basis salary in which the Ex-servicemen is re-employed;

(ii) Dearness Allowance;

E (iii) House Rent Allowance;

·~
(iv) City Compensatory Allowance;.

~~ 3.5 : Components of last drawn s:ilary in the Defence Services ('X')
including such ~llowances as are indicated at (3.3) above arc to be
F taken into account on the basis of discharge certificate/Last Pay
certificate of the individual employees ...... :........ .

3.6 : The component of pension will not be considered for pay
fixatioil.
G 3.7 : If the Ex-serviceman was re-employed within a period not
e~ceeding 3 )'ears from the· date of discharge from the Defence
Services 'X' (Last Drawn Salary in Defence Services) to be com-
pared shall be as drawn on the date of release of the Ex- ser-
vicemen whereas ihe 'Y' (starting salary in L.I.C.) to be compared
H shall be as on the date of re-employment in L.I.C.
_}
I

O.K. UDAYASANKARANv. U.0.1. [MRS. SUJATA V. MANOllAR, J.J 959

3.8 : If, however, he was re-employed more than three years after A
,._ the date of -discharge from Defence Services 'Y' salary to be
compared shall also be as obtaining on the date of discharge.
Corresponding fitment may then be given in the revised scale;
where necessary applicable at the time of re-employment of the
Ex-serviceman.
B
Example: .....................

The filment is to be done notionally and actual benefit may be
\
given from 1.1.1988 as shown in para 4 below.

If the basic salary determined on such comparison results in c
the same_ or lower than the basic salary at which the employee was
fitted on the date of re-employment, the existing salary fitment will
continue without any change.
'
4. If the basic salary determined on such comparison is higher than
the basic salary at which the employee was fitted on the date of D
re-employment, incremental difference that would emerge out of -
such fitment- would be added to individual S basic pay as on
7

1.1.1988 and arrears released accordingly from 1.1.1988 only•

. Example: ...............................
E
5. FITMENT OF EX-SERVICEMEN APPOINTED ON OR•
AFTER 1.1.1988:
• Fitment in thes~ case~ will be as per formula given in 3.1 above
from 1.1.1988 or the date of appointment in the industry ~hichever F
is later.

_6. OPTION-CUM-CONSENT LETTER :

An option-cum-consent letter hithe enclosed formai-(Appen-
dix 'B') •hould be obtained· from each· existing Ex-servicemen' G
employee opting fitment of salary as per these instructions.

7. FITMENT OF SALARY OF NEW ENTRANTS:
•
Fitment of salary of all Ex-servicemen appointed in the industry
henceforth shall be governed by th~se instructions." If'
960 SUPREME COURT REPORTS [1996] 3 S.C.R.

A The dispute relates to the application of Paragraphs 3.7 and 3.8 to
6-servicemen,
who ,have been employed by .
the Life Insurance Corporation
after 1.1.1988. According to the Life Insurance Corporation the benefit of
pay fixation under f'aragraphs 3.7 and 3.8 was given only to ex-servicemen
who were already employed by the Life Insurance Corporation prior to
1.1.1988. This benefit is not available to those ex-servicemen who have been
B
employed in Life Insurance Corporation after l.1.1988.

To resolve the dispute it is necessary to examine the scheme framed
by the Life Insurance Corporation on 2nd of June, 1989, for pay fixation
which is in supercession of earlier existing scheme. Paragraph 3 deals with
c fixation of pay on re-employment of ex-servicemen in Life Insurance
Corporation. Since ex-servicemen including released emergency commis-
sioned officers, shor! service commissioned officers and retrenched com-
missioned officers are relieved from military service at a comparatively
young age, certain facilities have been given to them for re-employment in
D various Government and Public Sector Undertakings including the Life
lnsur_ance CorporatiOn.

Under Paragraph 3.5 when the ex-serviceman is re-employed by the
Life Insurance Corporation he is normally fitted at the minimum of the '
scale for the post to which he is appointed. However, if his last drawn gross
E salary in Defence Service as specified in Paragraph 3.3 was more than the
gross salary which he will get in Life Insurance Corporation as specified in
Paragraph 3.4, his salary to be paid in Life Insurance Corporation is
adjusted so that he does not get less than· his last drawn pay in the Defence
Services. This adjustment is done as per Paragraph 3.1 adding to his
F minimum of the scale. additional increments as may be necessary to make
up the difference so that his last drawn gross salary is protected. This
adjustment is made so as to protect the last drawn salary of ex-servicemen
in the case of all re- employed ex-servicemen whether they were appointed
prior to 1.1.1988 or subsequent to 1.1.1988.

G Paragraph 3.7, However,· provides that if an ex-serviceman was re-
employed within three years from the date of his discharge from Defence
Services then his last. drawn salary in the Defence Services wi\l be com-
pared to his starting'. salary on the date of his re-employment in Life
Insurance Corporatioi;i so as to adjust the salary first drawn. by him on the
H date of re-employmen~ to equal the last drawn salary.
)

O.K. UDAYASA1'KARAN1·. U.0.1. (MRS. SUJATA V. MANO HAR J.l 961

In other words, he is governed by paragraph 3.1 to 3.6. Paragraph A
3.8 provides that if an ex-serviceman was re-employed more than three
't·
years after the date of his discharge from Defence Services, his last dra\vn
salary in Defence Services shall be compared \\1th his salary that he would
have been entitled to in the Life Insurance Corporotion had he been
immediately re-employed. The basic salary that he would have drawn in
Life Insurance Corporation on the date of his discharge is thus.determined
B
and on the basis of such a salary, the salary which the ex-serviceman will
get on the actual date of .his re-employment by Life Insurance Corporation
a. is notionally worked out. The figure so arrived at is the basic salary which
I ' will be paid to the ex-serviceman on his re-employment. Paragraph 3.8 also
'
provides that if in the interregnum any re\ision of pay scales takes place c
in Life Insurance Corporation the ex-serviceman will get the benefit of such
revision in respect of the pay scale ~o notionally worked out. However,
Paragraph 3.8 clearly provides that such a fitment has to be made only
notionally ;md any actual benefit so arising will be given to the existing
ex-servicemen only from 1.1.1988 as shown in Paragraph 4. Paragraph 4
D
sets out that any incremental difference that would emerge out of such
fitment would be added to the ex-serviceman's basic pay as on 1.1.1988 and
arrears would be released .accordingly from 1.1.1988 only.

A perusal of Paragraph 3.8 and Paragraph 4 clearly brings out the
fact that the fitment under Paragraph 3.8 has to be done only in the case · E
of ex-servicemen who were employed prior to 1.1.1988. Paragraph 3.8 itself
clearly provides that the benefit will be given to an existing ex-serviceman.
The existing ex-serviceman, thpugh employed prior to 1988 will get actual
• benefit only from 1.1.1988 and not for any date prior thereto. Such a
prmision would not have been required had this concept of notional F
fitment under Paragraph 3.8 not been made applicable only to "xisting ex-
servicemen. Paragraph 4 also says tha~ the incremental diffe~ence will be
added to the individual's basic pay as on 1.1.1988 and arrears will be
released accordingly. The entire scheme of Paragraph 3.8 and Paragraph
' 4, therefore, deals with existing· ex-servicemen or ex-servicemen who had
been employed prior to 1.1.1988. The examples which have been annexed G
i.- to Paragraph 3.8 are also all examples of ex-servicemen who joined Life
. Insurance Corporation prior to Ll.1988, thus clearly bringing out the
intention to cover under Paragraph 3.8 existing ex-servicemen who· had
been in the employment of Life Insurance Corporation prior to 1.1.1988.
•
The example which is appended to Paragraph 4 also deals with a case of H
962 SUPREME COURT REPORTS [1996] 3 S.C.R.

A an ex-serviceman employed along prior to 1. l.1988.

Paragraph 5 makes this position amply clear by setting out that ,,
ex-servicemen who arc appointed after J.1.1988 shall be fitted as per
formula given in Paragraph 3.1. above either from 1.1.1988 or the date of
appointment whichever is later. Paragraph 7 again clarifies this position by
B saying that the filment of salary of all ex-servicemen appointed in the
industry henceforth shall be governed by these instructions. The use of the
past t rnse in referring to the employment of ex-servicemen by Life In-
surance Corporation in Paragraphs 3.7 and 3.8 is also indicative of the fact
that it refers to ex-servicemen who were employed in the Life Insurance
C Corporation prior to the coming into force of the new scheme.
(
•
The reason for giving the benefit of Paragraph 3.8 to ex-se"icemen
who were employed by the Life Insurance Corporation prior to l.1.1988 is
referred t~ in the counter-affidavit filed on behalf of respondents 1 and 2
D in the writ petition as also in the affidavit filed on behalf of the respondents
in the appe.al. Normally, whenever. a person is re-employed in Government
service or public service, when the process of fixation of his pay is under-
taken, the component of pension which is received by the employee from
his earlier employer is always deducted and adjusted in the salary which
he gets on re-employment. This was being done in the case of ex-ser-
E vicemen re-employed by Life insurance Corporation prior to the coming
into operation of the new scheme. The Life Insurance Corporation decided
to treat its '~x-servicemen employees more liberally by providing under the
new scheme in Paragraph 3.6 that the component of pension will not be
considered •for pay fixation. The appellants herein as also all ex-servicemen
F who have been employed after 1.1.1988 have thus been allowed to retain
their pension from Defence Services. The pay which they are getting in Life
Insurance Corporation on the basis of the formula fixed under Paragraph
3.1 is addition to the pension which they are getting. This benefit, however,
was apparently not available to existing re-elljployed ex-servicemen prior
to 1.l .1988. As a result of negotiations which took place between the Life
G Insurance Corporation and the employees, it was decided to compensate
the existing re-employed ex-servicemen who had Jost the benefit of service
in Life Insurance Corporation for a period exceeding three years after their
1
discharge, by giving them a notional fitment in the Life Insurance
Corporatio~'s pay scales in the manner set out in Paragraph 3.8. There was-
H ·no question of giving such a benefit to ex-servicemen employed after
O.K. t:DAYASANKARAN ... U.0.l.l\IRS.SUJATAV. MA~OIIAR.J I 963

l.1.1988.
A
Dr. Dha\van, learned counsel appearing for the ex-servicemen has
emphasised the fact ihat an option-cum-rnnsrnt letter Paragraph 6 was
also taken from ex-servicemen employed after 1.1.1988. This is disputed by
the respondents. J-{o\vcver, Paragraph 6 itself quit~ cle<.irly provides that
the option-cum-consent letter has to be obtain~<l from each c.yistint; ex-ser- B
l'iccntan cnzployee opting fitmcnl of salary as per those instructions. Jt is,
therefore, quite clear that the option is to be exercised only by existing
ex-servicemen employees of Life Insurance Corporation, thus re-infarcing
, the contention' of the respondents that fitmcnt as per Paragraph 3.8 is not
available to ex-serivcr:mcn rc-employl!<l in Life Insurance Corporation after C.
1.1.1988. The respondents have admitted their mistake in asking for such
consent letter i[ they have done so. They have also admitted that they made
. a mi.stake in granting to the three ;.1ppellants before us the benefit of
Paragraph 3.8 although they were engaged after 1. 1.1988. They have sought
to correct thlS mistake by their letter of 16.1.1991 by recalculating their
salary from 1991. They arc entitled to reduce the pay of the appellant on D
the basis of the correct fitment to be given to the appellants in the light of
the instructions of 2nd of June, 1989. The High Court was, therefore, right
in rejecting the contentions of the appellants. The High Court has also
directed that for recovery of excess amount so paid reasonable instalments
should be given to the appellants so that undue hardship is not caused to E
them.

In these circumstances, we see no reason to interfere with the find-
ings given by the Kerala High Court. The appeal and the "petition are,
therefore, dismissed. Hov;cvcr, there \\ill ·he .no order a.s to costs.'

V.M. F
'"\ppcal_ an<l_ Petition tjismissc<l.

•